Woolworths and Wesfarmers are up so high on the list not because they are operating in a lot of countries but rather because they are overwhelmingly dominant in one – Australia.

Woolworths and Wesfarmers recorded annual retail sales just north of $50 billion each, while Walmart was by far the world's largest retailer with revenue of $US446.9 billion, followed by global hypermarket operator Carrefour with $US113.2 billion

According to the annual Deloitte report, fast-moving consumer goods (FMCG) retailers earned no less than 23 per cent of their revenues in countries outside their domestic markets last year.

This year's report was compelling proof of what has become a leading theme of the global retail industry: that growth in the modern era is crucially dependent on overseas expansion, particularly into emerging markets.

Not only are global retailers based in the US and Europe now often heavily invested in emerging markets, about half of the 50 fastest-growing retailers on the Deloitte list are actually based in emerging markets themselves.

Australia's largest retailers have therefore bucked the trend by not expanding overseas and this is not a great omen for smaller retailers or the supermarkets' vendors back home.

It means that Woolworths and Coles will be looking to squeeze more and more growth from a domestic retail pie that is increasing at a significantly slower rate. To achieve this they will need to squeeze harder and harder on price and also take more market share on the peripheral aisles – produce, bakery, meat and so forth – that have been the province of small specialty retailers in Australian shopping centres and strips.

On the non-food side of things, Australia's department store chains have also hesitated to give foreigners the benefit of their presence, preferring instead to open stores domestically despite a lack of visibility around demand for the format or the product. Myer and DJs have both probably concluded - and rightly so - that going overseas is not a strategy they can manage successfully, at least until they get their domestic houses back in some sort of order.

The implications of Australia's largest retailers not being able or willing to venture abroad like their counterparts elsewhere in the world are not great for the retailers themselves or their domestic competitors, many of them independent retailers.

The Deloitte report opines that 2013 will be a “hard slog” for retailers in Australia. You can say that again.

Michael Baker is principal of Baker Consulting and can be reached at michael@mbaker-retail.com and www.mbaker-retail.com.

28 comments

The problem for Coles and Woolies expanding overseas is that their business models rely on enormous economies of scale and the favourable trading terms that accompany that. They couldn't go to an overseas market and open up a half dozen, a dozen, even two dozen supermarkets.

Eventually it will make sense for Coles and Woolies to go overseas and make a bold step of acquiring say 100 sites (probably acquiring one or two struggling local chains to get the sites and reduce competition) and trying to dominate a state or region of a country in Asia, North America or Europe, then expanding that foothold if it succeeds. But we're talking a massive investment and risk.

Commenter

Arky

Date and time

January 16, 2013, 12:19PM

Their business model relies on them squeezing their suppliers dry with a take-or-leave-it attitude and restrictive contracts. Overseas, the suppliers have options and so can get a better deal. Collies just couldn't "compete" overseas.

Commenter

The Other Guy

Location

Geelong

Date and time

January 16, 2013, 1:34PM

On the other hand, DJs and Myers would be laughed out of the market anywhere else. Compare the prices and range and service and online sales of those dinosaurs to similar department stores in the US like Neiman Marcus. DJs and Myers need to bring their business models into the 21st century before they could possibly consider overseas expansion.

Commenter

Arky

Date and time

January 16, 2013, 12:21PM

The overall profit %-wise Woolworths makes from its retail sector is quite low. For a long time now, I've thought that the supermarket/retail sector of their business has not been their number 1 priority. I believe that Woolworths' attitude is heavily weighted to bars/pubs/poker machines (they operate more poker machines that the top 7 [it could actually be 9] casinos in Las Vegas), and in (large scale commercial) property..

With that being said, why would they take their low-profiting / high expense retail sector out of the country to expand?

Commenter

Utetopia2013

Location

Melbourne

Date and time

January 16, 2013, 12:32PM

The reason they couldn’t survive overseas is that they have a cosy little duopoly here that allows them to strong arm suppliers and rip off customers. They wouldn’t have that situation OS.

Commenter

Ali

Location

Melb

Date and time

January 16, 2013, 12:34PM

well said. couldn't have put them better.

Commenter

LPLP

Date and time

January 16, 2013, 1:40PM

Absolutely! Coles or Woolies really what is the difference???Both "Supermarkets" are stuck in the 70's and would not make a chance OS.

Commenter

Michael

Location

Sydney

Date and time

January 16, 2013, 1:57PM

Michael don't you think this dominance of Coles and Woolworths screwing the general public has to cease as this is nothing short of holding people to ransom.Highest grocery prices in the western world with outrageous profits, fruit and vegies (which they call fresh) that are old, petrol prices skyrocketing, liquor plus many more that would fill ten reams of paper.As for service, well there is none, it's a take it or leave it situation plus 90% of staff do not know their proucts.It all boils down to no servive, maximum profit for the shareholders

Commenter

Bill

Location

Canadian

Date and time

January 16, 2013, 12:38PM

Bill ask any Coles exec (most of them are from the UK) about our grocery prices and they’ll openly say they’re too high. Hence the rapid deflation in many grocery items over the last year.

Now everybody screams at them for screwing suppliers. So which do you want?

People bagging the execs of these two companies have no idea, they’re among the best in the world. Some of them are Australian, many aren’t.

As for two way dominance, Aldi have shown this just isn’t true. If you know what you’re doing and offer the consumer something compelling, they’ll respond. 200+ stores and rising. There’s room in the Australian market for anybody who’s diligent and hard-working.

Commenter

John

Date and time

January 16, 2013, 1:39PM

I just can't believe other major retailers haven't entered the Australian market. In less than a decade, Aldi have sliced a good chunk from the duopoly, and other retailers like Tesco and CarriFoure should be able to do the same. bring on the competition.